CHAPTER NO. 357 SENATE BILL NO. 899 By Clabough, Henry ...

CHAPTER NO. 357

SENATE BILL NO. 899

By Clabough, Henry, Atchley, Crutchfield, Miller, Cohen, Cooper, McLeary,Mr. Speaker Wilder

Substituted for: House Bill No. 832

By Head, Maddox, Mr. Speaker Naifeh, Borchert, Yokley, Brenda Turner, Litz, Shaw

AN ACT to amend Tennessee Code Annotated, Title 3; Title 4; Title 5; Title 6; Title 7;Title 8; Title 9; Title 12; Title 16; Title 30; Title 36; Title 39; Title 40; Title 45; Title47; Title 48; Title 49; Title 54; Title 55; Title 56; Title 57; Title 61; Title 62; Title 67;Title 68; Title 69; Title 70 and Title 71, relative to taxation.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:

SECTION 1. Tennessee Code Annotated, Title 67, Chapter 1, Part 17, isamended by adding the following new section:

(a) A Certified Service Provider shall comply with the privacy policy of theStreamlined Sales and Use Tax Agreement, and such policy is enforceable bythe attorney general.

(b) Returns and tax information of a Model 1 seller may be disclosed tothe seller’s certified service provider.

SECTION 2. Tennessee Code Annotated, Section 67-1-1802, is amended byadding the following new subsection:

(d) The provisions of this subsection are specifically made applicable to arefund arising from the application of § 67-6-507(e)(5).

SECTION 3. Tennessee Code Annotated, Section 67-6-102(a), is amended bydeleting subsection (6) in its entirety.

SECTION 4. Tennessee Code Annotated, Title 67, Chapter 6, is amended bysubstituting the words “purchase price” for the words “cost price” wherever they appear insuch chapter.

SECTION 5. Tennessee Code Annotated, Section 67-6-102(a)(7), is amended bydeleting the words and punctuation 'Dealer’ means every person, as used in this chapter,who:” and substituting instead the following:

“Dealer” means every person, as used in this chapter, including wherethe context requires, Model 1, 2 and 3 sellers, who:

SECTION 6. Tennessee Code Annotated, Section 67-6-102(a), is amended bydeleting the present subsection (9) in its entirety and renumbering the remainingsubsections:

SECTION 7. Tennessee Code Annotated, Section 67-6-102(a)(13)(A)(iv)(B), isamended by deleting the words, number, and punctuation “the cost of which, for anysingle article, exceeds one thousand dollars ($1,000)”; and is further amended by addingat the end of the subitem the following:

“for the purposes of this subdivision, ‘remanufacturing’ means makingnew or different products with new or different functions from the scrap materialsused to make them.;”

SECTION 8. Tennessee Code Annotated, Section 67-6-102(a), is amended bydeleting subsection (16) in its entirety and substituting instead the following:

(16) "Lease or rental" means any transfer of possession or control oftangible personal property for a fixed or indeterminate term for consideration. Alease or rental may include future options to purchase or extend.

(A) Lease or rental does not include:

(i) A transfer of possession or control of property undera security agreement or deferred payment plan that requires thetransfer of title upon completion of the required payments;

(ii) A transfer or possession or control of property underan agreement that requires the transfer of title upon completionof required payments and payment of an option price does notexceed the greater of one hundred dollars ($100) or one percent(1%) of the total required payments; or

(iii) Providing tangible personal property along with anoperator for a fixed or indeterminate period of time. A conditionof this exclusion is that the operator is necessary for theequipment to perform as designed. For the purpose of thissubsection, an operator must do more than maintain, inspect, orset-up the tangible personal property.

(B) Lease or rental does include agreements covering motorvehicles and trailers where the amount of consideration may beincreased or decreased by reference to the amount realized upon sale ordisposition of the property as defined in 26 USC Section 7701(h)(1).

(C) This definition shall be used for sales and use tax purposesregardless if a transaction is characterized as a lease or rental undergenerally accepted accounting principles, the Internal Revenue Code,Title 47, Chapter 2A, or other provisions of federal, state or local law.

(D) This definition shall be applied only prospectively from thedate of adoption and will have no retroactive impact on existing leases orrentals.


(20) “Mobile telecommunications service” means the same as that termis defined in 4 United States Code Section 124(7).


(25) “Retail sale” or “sale at retail” means any sale, lease, or rental forany purpose other than for resale, sublease, or subrent.

SECTION 11. Tennessee Code Annotated, Section 67-6-102(a), subsection(26), is amended by deleting item (B) in subsection (26) in its entirety and is furtheramended by adding to subsection (26) the following new items:

( ) “Sale” includes charges for admission, dues or fees which constitute asale under this section except tickets for admission sold to a Tennessee dealerfor resale upon presentation of a resale certificate. Dealers registered with thestate of Tennessee for sales tax purposes may purchase tickets for resalewithout payment of tax upon presentation to the vendor of a valid certificate ofresale;

( ) “Sale” includes all such transactions as the commissioner, uponinvestigation, finds to be in lieu of sales;

( ) “Sale” includes a transfer of possession or control of property under asecurity agreement or deferred payment plan that requires the transfer of titleupon completion of the required payments;

( ) “Sale” includes a transfer of possession or control of property underan agreement that requires the transfer of title upon completion of requiredpayments and payment of an option price that does not exceed the greater ofone hundred dollars ($100) or one percent (1%) of the total required payments;


(27)(A) “Sales price” applies to the measure subject to sales tax andmeans the total amount of consideration, including cash, credit, property,and services, for which personal property or services are sold, leased, orrented, valued in money, whether received in money or otherwise,without any deduction for the following:

(i) The seller's cost of the property sold;

(ii) The cost of materials used, labor or servicecost, interest, losses, all costs of transportation to theseller, all taxes imposed on the seller, and any otherexpense of the seller;

(iii) Charges by the seller for any servicesnecessary to complete the sale, other than delivery andinstallation charges;

(iv) Delivery charges;

(v) Installation charges;

(vi) The value of exempt personal property givento the purchaser where taxable and exempt personalproperty have been bundled together and sold by theseller as a single product or piece of merchandise; and

(vii) Credit for any trade-in, as determined bySection 67-6-510.

(B) “Sales price” shall not include:

(i) Discounts, including cash, term, or couponsthat are not reimbursed by a third party that are allowedby a seller and taken by a purchaser on a sale;

(ii) Interest, financing, and carrying chargesfrom credit extended on the sale of personal property orservices, if the amount is separately stated on theinvoice, bill of sale or similar document given to thepurchaser; and

(iii) Any taxes legally imposed directly on the consumerthat are separately stated on the invoice, bill of sale or similardocument given to the purchaser.

SECTION 13. Tennessee Code Annotated, Section 67-6-102(a), is amended bydeleting subsection (28) in its entirety.


(30)(a) “Tangible personal property” means personal property that canbe seen, weighed, measured, felt, or touched, or that is in any other mannerperceptible to the senses. “Tangible personal property” includes electricity,water, gas, steam, and prewritten computer software.

(b) "Tangible personal property" does not include signals broadcast overthe airwaves.

SECTION 15. Tennessee Code Annotated, Section 67-6-102(a), is amended byadding the following new subdivisions:

( ) “Certified automated system” means software certified under theSSUTA to calculate the tax imposed by each jurisdiction on a transaction,determine the amount of tax to remit to the appropriate state, and maintain arecord of the transaction.

( ) “Certified service provider” means an agent certified under the SSUTAto perform all the seller’s sales and use tax functions, other than the seller’sobligation to remit tax on its own purchases.

( ) "Commercial air carrier" means an entity authorized and certificatedby the U.S. Department of Transportation or another federal or a foreign authorityto engage in the carriage of persons or property in interstate or foreigncommerce.

( ) “Computer” means an electronic device that accepts information indigital or similar form and manipulates it for a result based on a sequence ofinstructions.

( ) “Computer software” means a set of coded instructions designed tocause a computer or automatic data processing equipment to perform a task.

( ) “Delivered electronically” means delivered to the purchaser by meansother than tangible storage media.

( ) “Delivery charges” means charges by the seller of personal propertyor services for preparation and delivery to a location designated by the purchaserof personal property or services including, but not limited to, transportation,shipping, postage, handling, crating, and packing.

( ) “Direct mail” means printed material delivered or distributed byUnited States mail or other delivery service to a mass audience or to addresseeson a mailing list provided by the purchaser or at the direction of the purchaserwhen the cost of the items are not billed directly to the recipients. “Direct mail”includes tangible personal property supplied directly or indirectly by thepurchaser to the direct mail seller for inclusion in the package containing theprinted material. “Direct mail” does not include multiple items of printed materialdelivered to a single address.

( ) “Direct pay permit” means special written permission granted to ataxpayer by the commissioner to make all purchases free of the sales or use taxand report all sales or use tax due directly to the department.

( ) “Direct pay permit holder” means a taxpayer who holds a direct paypermit.

( ) “Drug” means a compound, substance or preparation, and anycomponent of a compound, substance or preparation, other than “food and foodingredients,” “dietary supplements” or “alcoholic beverages”:

(A) Recognized in the official United State Pharmacopoeia,official Homeopathic Pharmacopoeia of the United States, or officialNational Formulary, and supplement to any of them; or

(B) Intended for use in the diagnosis, cure, mitigation, treatment,or prevention of disease; or

(C) Intended to affect the structure or any function of the body.

( ) “Durable medical equipment” means equipment, including repair andreplacement parts for same, (but does not include “mobility enhancingequipment”), which:

(A) Can withstand repeated use; and

(B) Is primarily and customarily used to serve a medical purpose;and

(C) Generally is not useful to a person in the absence of illnessor injury; and

(D) Is not worn in or on the body.

( ) “Electronic” means relating to technology having electrical, digital,magnetic, wireless, optical, electromagnetic, or similar capabilities.

( ) “Local tax jurisdiction” shall mean a geographic area where the samelocal option tax, either county tax or a combination of county and municipal tax,applies.

( ) “Mobility enhancing equipment” means equipment including repairand replacement parts to same, but does not include “durable medicalequipment,” which:

(A) Is primarily and customarily used to provide or increase theability to move from one place to another and which is appropriate foruse either in a home or a motor vehicle; and

(B) Is not generally used by persons with normal mobility; and

(C) Does not include any motor vehicle or equipment on a motorvehicle normally provided by a motor vehicle manufacturer.

( ) “Model 1 Seller” means a seller that has selected a certified serviceprovider as its agent to perform all the seller's sales and use tax functions, otherthan the seller's obligation to remit tax on its own purchases.

( ) “Model 2 Seller” means a seller that has selected a certifiedautomated system to perform part of its sales and use tax functions, but retainsresponsibility for remitting the tax.

( ) “Model 3 Seller” means a seller that has sales in at least five statesthat are members of the Streamlined Sales and Use Tax Agreement, has totalannual sales revenue of at least five hundred million dollars ($500,000,000), hasa proprietary system that calculates the amount of tax due each jurisdiction, andhas entered into a performance agreement with the member states thatestablishes a tax performance standard for the seller. As used in this definition,a seller includes an affiliated group of sellers using the same proprietary system.

( ) “Prescription” means an order, formula or recipe issued in any form oforal, written, electronic, or other means of transmission by a duly licensedpractitioner authorized by the laws of this state.

( ) “Prewritten computer software” means computer software, includingprewritten upgrades, which is not designed and developed by the author or othercreator to the specifications of a specific purchaser. The combining of two ormore “prewritten computer software” programs or prewritten portions thereofdoes not cause the combination to be other than “prewritten computer software”.“Prewritten computer software” includes software designed and developed by theauthor or other creator to the specifications of a specific purchaser when it is soldto a person other than the purchaser. Where a person modifies or enhancescomputer software of which the person is not the author or creator, the personshall be deemed to be the author or creator only of such person’s modificationsor enhancements. “Prewritten computer software” or a prewritten portion thereofthat is modified or enhanced to any degree, where such modification orenhancement is designed and developed to the specifications of a specificpurchaser, remains “prewritten computer software”; provided, however, thatwhere there is a reasonable, separately stated charge or an invoice or otherstatement of the price given to the purchaser for such modification orenhancement, such modification or enhancement shall not constitute “prewrittencomputer software”.

( ) (A) “Prosthetic device” means a replacement, corrective, or supportivedevice including repair and replacement parts for same worn on or in thebody to:

(i) Artificially replace a missing portion of the body;

(ii) Prevent or correct physical deformity or malfunction;or

(iii) Support a weak or deformed portion of the body.

(B) “Prosthetic device” does not include:

(i) Corrective eyeglasses;

(ii) Contact lenses;

(iii) Hearing aids; and

(iv) Dental prostheses.

( ) “Purchase price” applies to the measure subject to use tax and hasthe same meaning as sales price.

SECTION 16. Tennessee Code Annotated, Section 67-6-102, is amended bydeleting subsection (b) in its entirety.

SECTION 17. Tennessee Code Annotated, Section 67-6-103, is amended bydeleting subsection (f) in its entirety.

SECTION 18. Tennessee Code Annotated, Section 67-6-103, is amended byadding the following new appropriately designated subsection:

( ) Notwithstanding the provisions of this section to the contrary andnotwithstanding the provisions of Section 67-6-710, the moneys received underthe provisions of this chapter from interstate telecommunication services sold tobusinesses shall be distributed as follows: The revenue from a rate equal to one-half percent (0.5%) of tax shall be deposited in the general fund and earmarkedfor education purposes for kindergarten through grade twelve (K-12) inaccordance with § 67-6-103(c)(2). The revenue from a rate equal to one-halfpercent (0.5%) of tax shall be distributed to incorporated municipalities in theproportion each population bears to the aggregate population of the state and tounincorporated areas of counties in the proportion each population bears to theaggregate population of the state, according to the most recent federal censusand other census authorized by law. Counties and incorporated municipalitiesshall use such funds in the same manner and for the same purposes as fundsdistributed pursuant to § 67-6-712. The revenue from a rate equal to four percent(4%) of tax shall be deposited in the telecommunications ad valorem taxreduction fund created by § 67-6-222. All other revenue shall be deposited in thestate general fund and allocated pursuant to § 67-6-103(a).

SECTION 19. Tennessee Code Annotated, Section 67-6-201, is amended bydeleting subsections (9) and (10) and substituting the following appropriately numberedsubsection:

( ) Charging a fee for subscription to, access to or use of televisionservices, provided by any electronic means other than cable, wireless cable orsatellite.

( ) Whether or not the person has a place of business in this state,delivers tangible personal property in this state, if the delivery is made to aconsumer in this state or to another person, for redelivery to a consumer in thisstate pursuant to a retail sale made by such person to such consumer; providedthat this shall not be construed to impose a tax which is invalid either under thecommerce clause or the due process clause of the Constitution of the UnitedStates.

SECTION 20. Tennessee Code Annotated, Section 67-6-202, is amended insubsection (a) by deleting the phrase “§ 67-6-702(d)” and substituting instead “§ 67-6-702”.

SECTION 21. Tennessee Code Annotated, Section 67-6-202, is amended bydeleting subsection (b) in its entirety and by adding the following as a new, appropriatelylettered, subsection:

( ) This section levies a tax on the sales price of tangible personalproperty obtained from any vending machine or device.

SECTION 22. Tennessee Code Annotated, Section 67-6-203, is amended bydeleting subsection (b) and re-designating subsection (c) accordingly.

SECTION 23. Tennessee Code Annotated, Section 67-6-204, is amended bydeleting subsection (b) and re-designating the remaining sections accordingly.

SECTION 24. Tennessee Code Annotated, Section 67-6-205(a), is amended bydeleting the words “of the gross charge for” and substituting instead “on the sales priceof”.

SECTION 25. Tennessee Code Annotated, Section 67-6-205, is amended byadding the following as a new, appropriately lettered, subsection:

( ) The retail sale of the following services are taxable under thischapter:

(1) The sale, rental or charges for any rooms, lodgings, oraccommodations furnished to transients by any hotel, inn, tourist court,tourist camp, tourist cabin, motel, or any place in which rooms, lodgingsor accommodations are furnished to transients for a consideration. Thetax does not apply, however, to rooms, lodgings, or accommodationssupplied to the same person for a period of ninety (90) continuous daysor more;

(2) Charges for services rendered by persons operating orconducting a garage, parking lot or other place of business for thepurpose of parking or storing motor vehicles. The tax does not apply,however, to charges for such services made by the state and its politicalsubdivisions when providing on-street parking space for which chargesare collected, or when operating or conducting a garage or parking lotwhich is unattended and such charges are collected by parking meters;

(3) The furnishing, for a consideration, of either intrastate orinterstate telecommunication services;

(4) The performing for a consideration of any repair services withrespect to any kind of tangible personal property;

(5) The laundering or dry cleaning of any kind of tangiblepersonal property, excluding coin-operated laundry, dry cleaning or carwash facilities, where a charge is made therefor; provided, that theprovisions of this subdivision shall not apply to the bathing of animalsprovided by a licensed veterinarian when rendered for a medical purposein conjunction with the practice of veterinary medicine, as defined in §63-12-103;

(6) The installing of tangible personal property which remainstangible personal property after installation where a charge is made forsuch installation, whether or not such installation is made as an incidentto the sale thereof, and whether or not any tangible personal property istransferred in conjunction with such installation service;

(7) The enriching of uranium materials, compounds, or products,which is performed on a cost-plus basis or on a "toll enrichment fee"basis;

(8) The renting or providing of space to a dealer or vendorwithout a permanent location in this state or to persons who areregistered for sales tax at other locations in this state but who are makingsales at this location on a less than permanent basis. This subdivision (8)does not apply to the renting or providing of space to a craft fair, antiquemall, or book fair or gun show, if such gun show or book fair is sponsoredby a not-for-profit corporation. This subdivision (8) also does not apply tothe renting or providing of space at a flea market or the renting orproviding of space at conventions, trade shows, or expositions, if suchconventions, trade shows, or expositions do not allow the general publicto enter the exhibit area for the purpose of making sales or taking ordersfor sales;

(9) Charging a fee for subscription to, access to or use oftelevision services, provided by any electronic means other than cable,wireless cable, or satellite.

SECTION 26. Tennessee Code Annotated, Section 67-6-206(b), is amended insubdivision (1) by deleting the words, numbers, and punctuation “Tax at the rate of onepercent (1%) is likewise” and substituting instead the following “No tax is” and by deletingthe words, numbers, and punctuation “Tax at the rate of one and one-half percent (1.5%)shall be” and substituting instead “No tax is”. Section 67-6-206(b) is further amended bydeleting subdivisions (2) through (7) and substituting instead the following subdivision:

(2) For the purpose of this subsection, "manufacturer" means one whoseprincipal business is fabricating or processing tangible personal property forresale, and also includes a person engaged at a location in packagingautomotive aftermarket products manufactured at other locations by the sameperson or by a corporation affiliated with the manufacturing corporation suchthat:

(A) Either corporation directly owns or controls one hundredpercent (100%) of the capital stock of the other corporation; or

(B) One hundred percent (100%) of the capital stock of bothcorporations is directly owned or controlled by a common parent.

"Packaging", as used in this subdivision, refers only to the fabricationand/or installation of that packaging which will accompany the automotiveaftermarket product when sold at retail. The reduced rates shall apply only tosuch substances used in the packaging process. Such use must be establishedto the satisfaction of the commissioner by separate metering or otherwise. Toqualify for the exemption under this subdivision, a person shall apply for andreceive a certificate of qualification for the exemption from the commissioner. Such person shall provide a copy of the certificate to that person's supplier ofsuch substances to evidence qualification for the exemption.

SECTION 27. Tennessee Code Annotated, Section 67-6-207, is deleted in itsentirety and the following new section is substituted in its place:

67-6-207. (a) The sale at retail, lease, rental, use, consumption,distribution, repair storage for use or consumption in this state of the followingtangible personal property is specifically exempted from the tax imposed by thischapter when sold to a qualified farmer or nurseryman in accordance withsubsection (b):

(1) any appliance used directly and principally for the purpose ofproducing agricultural products, including nursery products, for sale anduse or consumption off the premises, but excluding an automobile,truck, household appliances or property which becomes real propertywhen erected or installed;

(2) grain bins and attachments thereto;

(3) aircraft designed and used for crop dusting, such as anagracat or other similar airplanes which are designed for crop dustingpurposes;

(4) equipment used exclusively for harvesting timber;

(5) trailers used to transport livestock, as defined in § 44-18-101;

(6) self-propelled fertilizer or chemical application equipmentused to spread fertilizer or chemical on farms to aid in the production offood or fiber for human or animal consumption (notwithstanding the factthat such equipment may be mounted on a chassis with wheels), if suchequipment is not designed for over-the-road use, but may be driven over-the-road from the source of supply to the farm, and tender beds andspreader beds, even if mounted on a truck chassis;

(7) systems for poultry environment control, feeding and wateringpoultry and conveying eggs;

(8) replacement parts or labor relative to the repair ofsubsections (1) - (8) hereof;

(9) "Gasoline" as defined by statute in Tennessee, upon which aprivilege tax per gallon is paid, and not refunded, or gasoline or dieselfuel used for "agricultural purposes" as defined in § 67-3-1203(2); exceptthat pre-mixed engine fuel containing gasoline and oil, produced for usein two-cycle engines and not for use in the propulsion of an aircraft,vessel or any other vehicle, that is sold in containers of one gallon (1gal.) or less, is not exempt from the tax imposed by this chapter. For

purposes of this subsection, "diesel fuel" means any petroleum distillatewith at least twelve (12) to sixteen (16) carbon atoms per molecule andwhich has a boiling point of between three hundred fifty degreesFahrenheit (350 degrees F) and six hundred fifty degrees Fahrenheit(650 degrees F) or any petroleum distillate which is ordinarily andcustomarily sold and used as a source of fuel for diesel engines;

(10) seeds, seedlings, plants grown from seed and liners(cuttings) which will produce food or fiber (including tobacco) for humanor animal consumption;

(11) fertilizer to be used to aid in the growth and development ofseeds, seedlings or plants as defined in subdivision (10);

(12) pesticides which are sold for the purpose of aiding in theproduction of food or fiber (including tobacco) for human or animalconsumption. As used in this section, "pesticide" means any substanceor mixture of substances or chemicals intended for defoliating ordesiccating plants or for preventing, destroying, repelling or mitigatingany insects, rodents, fungi, bacteria or weeds, including, but not limitedto, insecticides, fungicides, bactericides, herbicides, desiccants,defoliants, plant regulators and nematocides;

(13) containers for farm products and plastic or canvas used inthe care and raising of plants, seeds or seedlings, as defined in Section(10), and plastic or canvas used in covering feed bins, silos and othersimilar storage structures;

(14) livestock and poultry feeds, drugs used for livestock andinstruments used for the administration of such drugs;

(15) any natural or artificial substance used in the reproduction oflivestock, including semen or embryos;

(16) adjuvants and surfactants solutions sold exclusively for thepurpose of mixture with insecticides, pesticides, fungicides or herbicidesor for use as a soil conditioner when such is intended to aid in the growthand development of food or fiber (including tobacco) for human or animalconsumption;

(17) agri-sawdust;

(18) electricity and liquified gas, including, but not limited to,propane and butane used directly in the production of food or fiber forhuman or animal consumption or to aid in the growing of a horticulturalproduct for sale;

(19) coal, wood, woodproducts or wood by-products, or fuel oil,which is used as energy fuel in the production of nursery andgreenhouse crops.

(b) For purposes of this section, “a qualified farmer or nurseryman”means a person who meets one or more of the following criteria:

(1) that the person is the owner or lessee of agricultural landfrom which one thousand dollars ($1,000) or more of agricultural

products were produced or sold during the year, including paymentsfrom government sources;

(2) the person is in the business of providing for-hire customagricultural services for the plowing, planting, harvesting, growing,raising or processing of agricultural products or for the maintenance ofagricultural land;

(3) the person is the owner of land that qualifies for taxationunder the provisions of the Agricultural Forest and Open Space Land Actof 1996, Tennessee Code Annotated, Sections 67-5-1001, et seq.;

(4) the person’s federal income tax return contains one or moreof the following:

(A) business activity on IRS schedule F (Profit or LossFrom Farming);

(B) farm rental activity on IRS form 4835 (Farm RentalIncome and Expenses) or schedule E (Supplemental Income andLoss).

(5) the person otherwise establishes to the satisfaction of thecommissioner that the person is actively engaged in the business ofraising, harvesting or otherwise producing agricultural commoditiesas defined in Section 67-6-301(c)(2).

(c) Persons seeking to become qualified farmers or nurserymen shallapply to the commissioner for authority to make purchases exempt from tax.This application shall require such information as the commissioner deemsnecessary. If the commissioner finds from such information that the applicant isentitled to be a qualified farmer or nurseryman, the commissioner shall issue acertificate granting such authority for a period of four (4) years or until theapplicant is no longer operating within the scope of its original application. Anymisrepresentation made on the application by the applicant will subject theapplicant to any applicable tax, penalty and interest.

(d) Persons who have obtained authority from the commissioner tomake purchases tax exempt as a qualified farmer or nurseryman shall providetheir vendors with a copy of their authority and such purchases shall then beexempt from tax.

(e) Persons making purchases exempt from tax under this section shallkeep records to establish that the property qualifies for the exemption. Thepurchaser shall be liable for tax, penalty and interest for making non-qualifyingpurchases without payment of tax.

SECTION 28. Tennessee Code Annotated, Section 67-6-209(b), is amended bydeleting the sentence: “The exemption provided for herein for private nonprofit collegesor universities shall apply only to the state portion of the sales tax.”

SECTION 29. Tennessee Code Annotated, Section 67-6-212(a), is amended bydeleting the words “of the gross receipts or gross proceeds” and substituting instead “onthe sales price”.

SECTION 30. Tennessee Code Annotated, Title 67, Part 6, is amended bydeleting Section 67-6-217 in its entirety.

SECTION 31. Tennessee Code Annotated, Section 67-6-218, is amended bydeleting the section in its entirety.

SECTION 32. Tennessee Code Annotated, Section 67-6-219, is amended bydeleting the section in its entirety.

SECTION 33. Tennessee Code Annotated, Section 67-6-221, is amended bydeleting this section in its entirety.

SECTION 34. Tennessee Code Annotated, Title 67, Chapter 6, is amended bydeleting Section 67-6-226 in its entirety.

SECTION 35. Tennessee Code Annotated, Title 67, Chapter 6, is amended bydeleting Section 67-6-227 in its entirety.

SECTION 36. Tennessee Code Annotated, Section 67-6-228, is amended bydeleting the present language in its entirety and substituting instead the following:

(a) Notwithstanding any provision of this part to the contrary, except asotherwise provided in subsection (c), the retail sale of food and food ingredientsfor human consumption shall be taxed at the rate of six percent (6%) of the salesprice.

(b) Except as otherwise provided in this section, "food and foodingredients" means substances, whether in liquid, concentrated, solid, frozen,dried, or dehydrated form, that are sold for ingestion or chewing by humans andare consumed for their taste or nutritional value. “Food and food ingredients”does not include alcoholic beverages, tobacco, candy, or dietary supplements.

(c) The retail sale of the food and food ingredients sold as prepared foodshall be taxed at the rate of tax levied on the sale of tangible personal property atretail by the provisions of § 67-6-202.

(d) For purposes of this section:

(1) "Candy" means a preparation of sugar, honey, or othernatural or artificial sweeteners in combination with chocolate, fruits, nuts,or other ingredients or flavorings in the form of bars, drops, or pieces.Candy shall not include any preparation containing flour and shall requireno refrigeration.

(2) "Dietary supplement" means any product, other than tobacco,intended to supplement the diet that:

(i) Contains one or more of the following dietaryingredients:

(a) A vitamin;

(b) A mineral;

(c) A herb or other botanical;

(d) An amino acid;

(e) A dietary substance for use by humans tosupplement the diet by increasing the total dietaryintake; or

(f) A concentrate, metabolite, constituent,extract, or combination of any ingredient describedabove; and

(ii) Is intended for ingestion in tablet,capsule, powder, softgel, gelcap, or liquid form,or if not intended for ingestion in such a form, isnot represented as conventional food and is notrepresented for use as a sole item of a meal orof the diet; and

(iii) Is required to be labeled as a dietarysupplement, identifiable by the "SupplementFacts" box found on the label and as requiredpursuant to 21 C.F.R. §101.36.

(3) "Prepared food” means:

(i) Food sold in a heated state or heated by the seller;

(ii) Two or more food ingredients mixed or combined bythe seller for sale as a single item; or

(iii) Food sold with eating utensils provided by the seller,including plates, knives, forks, spoons, glasses, cups, napkins,or straws. A plate does not include a container or packagingused to transport the food.

“Prepared food” in subdivision (ii) does not include food that isonly cut, repackaged, or pasteurized by the seller, and eggs, fish, meat,poultry, and foods containing these raw animal foods requiring cookingby the consumer as recommended by the Food and Drug Administrationin Chapter 3, Part 401.11 of its Food Code so as to prevent food borneillnesses.

(4) “Alcoholic Beverages” means beverages that are suitable forhuman consumption and contain one-half of one percent (0.5%) or more ofalcohol by volume.

(5) “Tobacco” means cigarettes, cigars, chewing or pipe tobacco, orany other item that contains tobacco.

SECTION 37. Tennessee Code Annotated, Title 67, Chapter 6, Part 2, isamended by adding the following as a new section:

Notwithstanding the exemptions provided by §§ 67-6-322 and 67-6-329for sales to schools, "retail sale" and "sale at retail" subject to tax include anysale of tangible personal property or taxable services to a public or privateschool, grades kindergarten through twelve (K-12), or school support group,where such property or services are intended for resale by the school or school

support group. Resales of such tangible personal property or taxable services bysuch school or school support group shall not be subject to tax. If for any reasona vendor does not collect and remit tax to the department on the sale of theseitems to the school or school support group, then the school or school supportgroup shall be liable for use tax based on the purchase price of the items. Thissection does not apply to sales of school books, and food and food ingredients,including prepared food.

SECTION 38. Tennessee Code Annotated, Title 67, Chapter 6, Part 2, isamended by adding a new appropriately designated sections as follows:

Section 67-6-2… (a) Notwithstanding any other provision of law to thecontrary, the sale of a prepaid telephone calling card and/or the recharge of thecard shall be subject to the tax levied by this chapter and shall be sourced underthe provisions of Section 67-6-902(a) at the time of the sale or recharge. Noadditional tax shall be due when the telecommunication service is provided to theuser of the calling card.

(b) Notwithstanding any other provision of law to the contrary, the sale ofa warranty or service contract, covering the repair or maintenance of tangiblepersonal property, shall be subject to the tax levied by this chapter and sourcedunder the provisions of Section 67-6-902(a) at the time of the sale of the contract.No additional tax shall be due on any repairs to the extent they are covered bythe contract.

Section 67-6-2… The sale or use of computer software shall be subjectto the tax levied by this chapter and sourced under the provisions of Section 67-6-902(a).

SECTION 39. Tennessee Code Annotated, Section 67-6-312, is repealed.

SECTION 40. Tennessee Code Annotated, Section 67-6-314, is amended bydeleting subsections (1) through (5) and substituting instead the following:

(1) The sale or use of prosthetic devices.

(2) The sale or use of durable medical equipment for home use.

(3) The sale or use of mobility enhancing equipment.

(4) The sale or repair of surgical supports of all kinds, and other similarlymedical corrective or support appliances and devices.

(5) Any syringe used to dispense insulin.

SECTION 41. Tennessee Code Annotated, Section 67-6-318, is repealed.

SECTION 42. Tennessee Code Annotated, Section 67-6-320, is amended bydeleting subsections (a) and (b) in their entirety and substituting instead the following:

(a) There is exempt from the tax imposed by this chapter any drug forhuman use dispensed pursuant to a prescription.

(b) There is exempt from the tax imposed by this chapter:

(1) The sale or use of insulin.

(2) The sale or use of oxygen prescribed or recommended forthe medical treatment of a human being by a licensed practitioner of thehealing arts, and the durable medical equipment and other equipmentnecessary to administer such oxygen.

SECTION 43. Tennessee Code Annotated, Section 67-6-322(g), isamended by deleting the subsection in its entirety and replacing it with thefollowing:

(g) The sale, purchase, use, consumption or distribution ofenergy in the form of steam or chilled water produced and distributed byan energy resource recovery facility operated in a county with ametropolitan form of government is exempt from sales or use tax.

SECTION 44. Tennessee Code Annotated, Section 67-6-329 (a)(1), isamended by replacing the comma with a period after “and not refunded” anddeleting the remainder of the subdivision.

SECTION 45. Tennessee Code Annotated, Section 67-6-329, isamended by deleting subdivisions (a)(3), (a)(4), (a)(5), a(6), (a)(7), (a)(8), (a)(9),(a)(10) and (A)(17) in their entirety and the remaining sections renumbered.

SECTION 46. Tennessee Code Annotated, Section 67-6-329(a)(11), isdeleted in its entirety and the remaining sections renumbered.

SECTION 47. Tennessee Code Annotated, Section 67-6-329, isamended in subdivision (a)(12) by deleting the words “and school lunches”.

SECTION 48. Tennessee Code Annotated, Section 67-6-329(a), isamended by adding the following new, appropriately lettered subdivisions:

( ) Federal retail excise tax imposed by §§ 4051-4053 of the InternalRevenue Code of 1954, as amended, or as such tax may be amended hereafter,when such tax is a part of the sales price;

( ) Federal excise tax on diesel fuel purchased for off-road use asprovided in Title 67, Chapter 3, whether or not such tax is required by law to bepassed on to the ultimate consumer, when such tax is a part of the sales price;

( ) Dyed diesel fuel purchased for off-road use as provided in Title 67,Chapter 3;

( ) Industrial materials and explosives for future processing, manufactureor conversion into articles of tangible personal property for resale where suchindustrial materials and explosives become a component part of the finishedproduct or are used directly in fabricating, dislodging, sizing;

( ) Materials, containers, labels, sacks, bags or bottles used forpackaging tangible personal property when such property is either sold thereindirectly to the consumer or when such use is incidental to the sale of suchproperty for resale;

( ) Film, including negatives, used in the business of printing, or providedto a business of printing to obtain the services of such business; or typesettingused in the business of printing and materials necessary for such typesetting or

typesetting or materials necessary for typesetting provided to a business ofprinting to obtain the services of such business;

( ) Home communication terminals, remote control devices, and othersimilar equipment purchased on or after January 1, 2000, by a cable televisionservice provider authorized pursuant to Title 7, Chapter 59, and held for sale orlease to its subscribers;

( ) Charges for subscriptions to, access to, or use of televisionprogramming or television services provided by a provider of cable televisionservice authorized pursuant to Title 7, Chapter 59, by a provider of wireless cabletelevision services (multipoint distribution service/multichannel multipointdistribution service), or by a provider of direct-to-home satellite service;

( ) Utility poles, anchors, guys, and conduits;

( ) Aircraft used for and owned by a person providing flight training;

( ) Food and food ingredients, as defined in Section 67-6-228, when soldby a public or private school.

SECTION 49. Tennessee Code Annotated, Section 67-6-330, is amended insubdivision (a)(2) by deleting the words “Gross proceeds or receipts from” andsubstituting instead “The sales price of”, and is further amended in subdivisions (a)(7),(a)(13) and (a)(16) by deleting the words “Gross proceeds derived from” and substitutinginstead “The sales price of”, and is further amended in subdivision (a)(15) by deleting thewords “Gross proceeds or receipts derived from” and substituting instead “The salesprice of”.

SECTION 50. Tennessee Code Annotated, Section 67-6-330, is amended bydeleting subdivision (a)(3) in its entirety and renumbering the remaining sections.

SECTION 51. Tennessee Code Annotated, Section 67-6-340, is amended bydeleting subdivision (c) in its entirety.

SECTION 52. Tennessee Code Annotated, Section 67-6-348, is amended byadding the following as a new subsection:

( ) For purposes of this section, “clothing” shall mean all human wearingapparel suitable for general use.

SECTION 53. Tennessee Code Annotated, Title 67, Chapter 6, Part 3, isamended by adding the following as a new section:

(a) Notwithstanding other provisions of this chapter, except as providedin this section, no tax is imposed with respect to sales of tangible personalproperty to common carriers for use outside this state.

(b) Persons seeking to make purchases exempt from tax shall apply tothe commissioner for a certificate as provided in § 67-6-528 to obtain theexemption. The common carrier must give a copy of the certificate to eachdealer from which it intends to make purchases exempt from tax.

(c) If a common carrier fails to keep records as required by thecommissioner to establish that property purchased exempt from tax was not usedin this state but was removed from this state for use and consumption outside

this state, then the common carrier shall be liable for tax on such property at thefull rate provided by § 67-6-203 regardless of whether such carrier had previouslyobtained a certificate as provided by this section; provided that the carrier shallbe given credit for any tax paid on such property pursuant to Title 67, Chapter 4,Part 23, as provided in Section 75 of this Act.

(d) This section does not apply to sales of food and food ingredients,candy, dietary supplements, alcoholic beverages, tobacco and fuel.


Section 67-6-3… (a) Notwithstanding other provisions of this chapter,except as provided in this section, no tax is imposed with respect to the sale oruse of aviation fuel sold to commercial air carriers that is actually used in theoperation of airplane or aircraft motors.

(b) Notwithstanding other provisions of this chapter, no tax is imposedwith respect to the sale or use of diesel fuel sold to or used by a common carrierthat is actually used in the operation of locomotives or railcars for the carriage ofpersons or property in interstate commerce.

(c) Commercial air carriers seeking to make purchases of aviation fuelexempt from tax and common carriers seeking to make purchases of diesel fuelto be used in the operation of locomotives or railcars for the carriage of personsor property in interstate commerce exempt from tax shall apply to thecommissioner for a certificate as provided in § 67-6-528 to obtain the exemption.The carrier must give a copy of the certificate to each dealer from which it intendsto make purchases of aviation fuel or qualified diesel fuel exempt from tax.

(d) If the commercial air carrier fails to keep records as required by thecommissioner to establish that property purchased exempt from tax was actuallyused in the operation of airplane or aircraft motors, then the air carrier shall beliable for tax on such property at the full rate provided by § 67-6-203 regardlessof whether such carrier had previously obtained a certificate as provided by thissection; provided that the carrier shall be given credit for any tax paid on suchproperty pursuant to Title 67, Chapter 4, Part 23, as provided in Section 75 of thisAct.

(e) If the common carrier fails to keep records as required by thecommissioner to establish that diesel fuel purchased exempt from tax wasactually used in the operation of locomotives or railcars for the carriage ofpersons or property in interstate commerce, then the common carrier shall beliable for tax on such property at the full rate provided by § 67-6-203 regardlessof whether such carrier had previously obtained a certificate as provided by thissection; provided that the carrier shall be given credit for any tax paid on suchproperty pursuant to Title 67, Chapter 4, Part 23, as provided in Section 75 of thisAct.


Section 67-6-3… There is exempt from the use tax levied by this chapterthe fabrication of computer software by a person for such person’s own use andconsumption.

SECTION 56. Tennessee Code Annotated, Section 67-6-402(b), is amended bydeleting the words “suitable brackets of prices for applying the tax or any other method”and substituting instead the following: “suitable methods for applying the tax”.


(a) When a purchaser claims an exemption:

(1) The seller must obtain identifying information of thepurchaser and the reason for claiming a tax exemption at the time of thepurchase as determined by the member states of the Streamlined Salesand Use Tax Agreement acting jointly.

(2) A purchaser is not required to provide a signature to claim anexemption from tax unless a paper certificate is used.

(3) The seller must use the standard form for claiming anexemption electronically as adopted jointly by the member states.

(4) The seller must obtain the same information for proof of aclaimed exemption regardless of the medium in which the transactionoccurred.

(5) The commissioner may utilize a system wherein thepurchaser exempt from the payment of the tax is issued an identificationnumber which must be presented to the seller at the time of the sale.

(6) The seller must maintain proper records of exempttransactions and provide them to the commissioner when requested.

(b) Sellers that follow the requirements of this section are not liable forany tax otherwise applicable if it is determined that the purchaser improperlyclaimed an exemption. The purchaser is liable for the tax.

(c) Sellers that do not follow the requirements of this section shall beliable for the tax.

(d) Sellers that fraudulently fail to collect tax or that solicit a purchaser toparticipate in the unlawful claim of an exemption shall be liable for the tax.

SECTION 58. Tennessee Code Annotated, Section 67-6-504, is amended byadding the following words and punctuation after the phrase “during the precedingcalendar month” at the end of subsection (a):

“; provided that each dealer shall be required to file only one return per month forall of its locations within the state”.

Section 67-6-504 is further amended by deleting subsection (e) and byadding the following new subsections:

(e) In computing the tax due or to be collected as the result of anytransaction, the tax rate shall be the sum of the applicable state and local rate, ifany, and the tax computation must be carried to the third decimal place.Whenever the third decimal place is greater than four, the tax shall be rounded tothe next whole cent.

(f) A seller may elect to compute the tax due on a transaction on eitheran item or an invoice basis, and may apply the rounding rule provided for insubsection (e) to the aggregated state and local taxes. A seller shall not berequired to collect the tax on a bracket system.

(g)(1) Any dealer making sales subject to the tax imposed by this chaptermay choose to collect and remit taxes as a Model 1, Model 2 or Model 3seller, subject to the provisions of this subsection. For purposes of thissubsection, tax includes any associated interest and penalty.

(2) A dealer choosing Model 1 must contract with a certifiedservice provider and must permit the certified service provider todetermine the tax due, to collect the tax, to file returns and to remit thetax to the appropriate state, on all of its sales, leases or rentals oftangible personal property or services that are subject to the tax leviedby this chapter or that are subject to the sales tax of any other state,including the District of Columbia, that is a member of the StreamlinedSales and Use Tax Agreement. A Model 1 seller’s liability to this statefor the tax levied by this chapter is limited to the tax due on its ownpurchases, the tax due on any of its sales, leases or rentals which aremade outside the system provided by the certified service provider, andthe tax due in the event of fraud by the Model 1 seller.

(3) A dealer choosing Model 2 must use a certified automatedsystem to determine the tax due on all of its sales, leases or rentals oftangible personal property or services that are subject to the tax leviedby this chapter or that are subject to the sales tax of any other state,including the District of Columbia, that is a member of the StreamlinedSales and Use Tax Agreement. A Model 2 seller is not liable for anyerrors made by the certified automated system in determining the taxdue on any transaction.

(4) A dealer who wishes to collect and remit taxes as a Model 3seller must apply to and be approved by the commissioner for suchcertification.

(h) A certified service provider has, and is subject to, all of the rights,liabilities, duties and responsibilities imposed by this chapter as if it were theModel 1 seller for whom the certified service provider has agreed to perform allsales and use tax functions, except the Model 1 seller’s obligation to remit tax onits own purchases.

(i) The commissioner may enter into contracts with certified serviceproviders for the collection and reporting of the tax imposed under this chapter.The commissioner may enter into such contracts in conjunction with other states.

SECTION 59. Tennessee Code Annotated, Section 67-6-507, is amended bydeleting subsection (e) in its entirety and substituting instead the following:

(e) A deduction from taxable sales shall be allowed for bad debts arisingfrom a sale on which the tax imposed by this chapter was paid.

(1) Any deduction taken that is attributed to bad debts shall notinclude interest.

(2) For purpose of calculating the deduction, a “bad debt” is asdefined in 26 U.S.C. § 166. However, the amount calculated pursuant to26 U.S.C. § 166 shall be adjusted to exclude: financing charges orinterest; sales or use taxes charged on the purchase price; uncollectableamounts on property that remain in the possession of the seller until thefull purchase price is paid; expenses incurred in attempting to collect anydebt, and repossessed property.

(3) The deduction provided for by this subsection shall bededucted on the return for the period during which the bad debt is writtenoff as uncollectable in the claimant’s books and records and is eligible tobe deducted for federal income tax purposes. For purposes of thissubsection, a claimant who is not required to file federal income taxreturns may deduct a bad debt on a return filed for the period in whichthe bad debt is written off as uncollectable in the claimant’s books andrecords and would be eligible for a bad debt deduction for federal incometax purposes if the claimant was required to file a federal income taxreturn.

(4) If a deduction is taken for a bad debt and the debt issubsequently collected in whole or in part, the tax on the amount socollected must be paid and reported on the return filed for the period inwhich the collection is made.

(5) When the amount of bad debt exceeds the amount oftaxable sales for the period during which the bad debt is written off, thetaxpayer may file a refund claim and receive a refund pursuant to § 67-1-1802. The statute of limitations for filing such claim shall be measuredfrom the due date of the return on which the bad debt could first beclaimed.

(6) Where filing responsibilities have been assumed by aCertified Service Provider, the service provider may claim, on behalf ofthe seller, any bad debt allowance provided by this section; provided theservice provider credits or refunds the full amount of any bad debtallowance or refund received to the seller.

(7) For the purposes of reporting a payment received on apreviously claimed bad debt, any payments made on a debt or accountshall be applied first proportionally to the taxable price of the property orservice and the sales tax thereon, and then to interest, service charges,and any other charges.

(8) In situations where the books and records of the partyclaiming the bad debt allowance support an allocation of the bad debtsamong the member states of the Streamlined Sales and Use TaxAgreement, such allocation shall be permitted.

SECTION 60. Tennessee Code Annotated, Section 67-6-528, is amended bydeleting all language in the section and substituting instead the following:

(a) Common Carriers and commercial air carriers seeking to makepurchases exempt from tax pursuant to Section 67-6-… or Section 67-6-… shallapply to the commissioner for a certificate. This application shall be made uponforms provided by the commissioner and shall require information deemednecessary by the commissioner to establish that the applicant is a common

carrier making purchases of tangible personal property for use outside this stateor is a commercial air carrier that actually uses aviation fuel in the operation ofairplanes or aircraft motors or is a common carrier that actually uses diesel fuel inthe operation of locomotives or railcars for the carriage of persons or property ininterstate commerce. The certificate may be revoked by the commissioner at anytime if the commissioner finds that the holder no longer meets the conditionsprecedent for the exemption.

(b) Common carriers making purchases exempt from tax pursuant toSection 67-6-… shall keep records of all such purchases establishing to thesatisfaction of the commissioner that items purchased were not used inTennessee but were removed from this state for use and consumption outsidethis state.

(c) Commercial air carriers making purchases exempt from tax pursuantto Section 67-6-… shall keep records of all such purchases establishing to thesatisfaction of the commissioner that the fuel was actually used in the operationof airplanes or aircraft motors.

(d) Common carriers making purchases of diesel fuel exempt from taxpursuant to Section 67-6-... shall keep records of all such purchases establishingto the satisfaction of the commissioner that the fuel was actually used in theoperation of locomotives or railcars for the carriage of persons or property ininterstate commerce.

SECTION 61. Tennessee Code Annotated, Title 67, Chapter 6, Part 5, isamended by adding the following new sections:

Section __. Sellers and Certified Service Providers have no liability tothe State or local jurisdictions for having charged and collected the incorrectamount of sales or use tax resulting from the seller or Certified Service Providerrelying on erroneous data provided by the commissioner on tax rates,boundaries, or taxing jurisdiction assignments.

Section __. Notwithstanding Section 67-6-806(a), if a nine digit zip codedesignation is not available for a street address, or if a seller is unable todetermine the nine digit zip code designation of a purchaser after exercising duediligence to determine the designation, the seller may apply the rate for the fivedigit zip code area. For the purposes of this section, there is a rebuttablepresumption that a seller has exercised due diligence if the seller has attemptedto determine the nine digit zip code designation by utilizing software approved bythe member states to the Streamlined Sales Tax Agreement that makes thisdesignation from the street address and the five digit zip code of the purchaser.The provisions of this section do not apply when the product purchased isreceived by the purchaser at the business location of the seller. The provisionsof this section have no application if the commissioner provides an addressed–based provision pursuant to Section 67-6-806(d).

Section __. The department may enter into a reciprocal agreement withthe comparable department of another state to furnish records concerningpurchases made by citizens of the other state from a dealer in this state wherethe dealer collects neither a sales nor a use tax on such sales; provided, that theother state agrees to furnish the same records to this state and each sale is inexcess of five hundred dollars ($500). All dealers in Tennessee making sales topurchasers in another state where no sales or use tax is collected shall furnishthe department copies of all such invoices or suitable substitutes for sales in

excess of five hundred dollars ($500) with their monthly returns; provided, thatthe department notifies such dealers of the existence of a reciprocal agreement.

Section __. (a) Model 1, 2, or 3 sellers shall submit their returns in suchformat as required by the member states to the Streamlined Sales and Use TaxAgreement; provided, however, that all such returns shall be filed electronically.

(b) Notwithstanding any provision of law to the contrary, thecommissioner is authorized to require Model 1, 2, or 3 sellers twice each year tosubmit additional, informational returns as permitted by the members states tothe Streamlined Sales and Use Tax Agreement.

(c) Notwithstanding the provisions of Section 67-1-703 to the contrary, allremittances from Model 1, 2, or 3 sellers shall be made electronically, using ACHCredit or ACH Debit processes. The commissioner is authorized to provide foran alternative method of making the payment in the event the electronic fundstransfer process fails.

(d) Sellers who register using the central registration system provided bythe member states to the Streamlined Sales and Use Tax Agreement, who arenot Model 1, 2, or 3 sellers, and who have no legal requirement to register in thisstate, are not required to file a return until the earlier of one year after theyinitially register or when they have collected state and local taxes in the amountof $1,000 or more; provided, however, that nothing in this subsection shall relievea seller who collects Tennessee sales tax from its customers from liability forfailure to pay over those funds to the commissioner on behalf of the state.

Section __. (a) This section applies to sellers who satisfy all of thefollowing requirements:

(1) The seller registers to pay and/or to collect and remitapplicable sales and/or use tax on sales made to purchasers in this Statein accordance with the terms of the Streamlined Sales and Use TaxAgreement within twelve months of the effective date of this state’sbecoming a member of the Agreement.

(2) During the twelve-month period preceding the State’sbecoming a member of the Agreement, the seller was not registered tocollect and remit tax under this chapter.

(3) There is no audit or assessment pending with respect to theseller, and the department has not notified the seller that it will be thesubject of an audit.

(b) A seller who satisfies the criteria set out in subsection (a) is not liablefor sales or use tax not collected from its customers prior to the date of itsregistration, nor liable for any related interest or penalty, subject to the limitationscontained in subsection (c).

(c)(1) A seller remains liable for tax collected from its customers but notremitted to the state, and remains liable for any related interest andpenalty.

(2) A seller remains liable for any use tax due which arises from itscapacity as a buyer and user or consumer of taxable items.

(3) The release from liability provided by subsection (b) is void unless theseller maintains its registration and continues to collect and remit applicablesales and use taxes for at least thirty-six months. The statute of limitationsprovided in Section 67-1-1501 is tolled during the thirty-six month period.

(4) Fraud or intentional misrepresentation of a material fact voids therelease from liability provided by subsection (b).

Section ___. (a) These customer refund procedures apply when apurchaser seeks a refund of over-collected sales or use taxes from a seller.

(b) Nothing in this section shall require the Department to refund to apurchaser taxes collected in error by a seller from the purchaser.

(c) Nothing in this section shall operate to extend any person's time toseek a refund of sales or use taxes collected or remitted in error.

(d) A cause of action against a seller for the over-collected sales or usetaxes does not accrue until a purchaser has provided a written notice of the over-collection and a request for a refund to the seller and the seller has had sixtydays to respond. Such notice to the seller must contain the informationnecessary to determine the validity of the request.

(e) In connection with a purchaser's request from a seller of over-collected sales or use taxes, a seller shall be presumed to have a reasonablebusiness practice, if in the collection of such sales or use taxes, the seller:

(A) uses either a provider or a system, including a proprietarysystem, that is certified by the Department; and

(B) has remitted to the state all taxes collected less anydeductions, credits, or collection allowances.

SECTION 62. Tennessee Code Annotated, Section 67-6-601, is amended byadding the following as a new appropriately designated subsection:

( ) A person does not have nexus with Tennessee for sales and use taxpurposes by reason of the relationship between the person and a commercialprinter or mailer having a presence in Tennessee.


Section __. (a) Notwithstanding the provisions of Sections 67-6-601 and67-6-602, a person may register using the central, electronic registration systemprovided by member states of the Streamlined Sales and Use Tax Agreement;and furthermore the commissioner shall permit a person to register through anagent under procedures adopted by member states of the Streamlined Sales andUse Tax Agreement.

(b) By registering using the central, electronic system, the seller agreesto collect and remit sales and use taxes for all taxable sales sourced toTennessee. If Tennessee ceases to be a member of the agreement, the sellerremains liable to remit all taxes previously collected on sales sourced to thisstate.

SECTION 64. Tennessee Code Annotated, Section 67-6-702(d), is amended bydeleting the period at the end of the first sentence and adding the following words andpunctuation:

; provided, however, and notwithstanding any other law to the contrary, “singlearticle” applies only to motor vehicles, aircraft, watercraft, modular homes,manufactured homes, or mobile homes and only such items shall be regarded as“single articles”. Parts or accessories for motor vehicles that are installed at thefactory and delivered with the unit as original equipment and/or parts oraccessories for motor vehicles that are installed by the dealer and/or distributorprior to sale, at the time of the sale, or which are included as a part of the unit. Inaddition, all necessary parts and equipment installed by a motor vehicle dealerwhich are essential to the functioning of the motor vehicle or are required to beinstalled on the motor vehicle prior to sale to the ultimate consumer pursuant tostate or federal statutes relating to the lawful use of the motor vehicle shall betreated as a part of the unit. Boat motors, other parts or accessories for boats,freight, and labor, excluding trailers, shall be treated as part of the boat unit in thesame manner as parts or accessories for motor vehicles are treated as part ofthe motor vehicle unit. Parts and accessories and any other additional orincidental items or services that are part of the sale of a manufactured homeshall be treated as part of the manufactured home unit in the same manner asparts and accessories for motor vehicles are treated as part of the motor vehicleunit.

SECTION 65. Tennessee Code Annotated, Section 67-6-702, is amended bydeleting the present subsections (b), (e), (f) and (g) in their entirety, and by amendingsubsection (a)(1) to replace the period at the end of the subsection with a semicolon andadd "and provided further that the tax levied on the sale, purchase, use, consumption ofelectricity, piped natural or artificial gases, or other heating fuels delivered by the sellershall be one-half percent (.5%).

SECTION 66. Tennessee Code Annotated, Section 67-6-704, is amended bydeleting the subsection in its entirety and replacing it with the following words:

No county or incorporated city or town is authorized to levy a sales oruse tax on the sale, purchase, use, consumption or distribution of energy in theform of steam or chilled water sold by an energy resource recovery facilityoperated in a county with a metropolitan form of government.

SECTION 67. Tennessee Code Annotated, Section 67-6-706(a)(3), is amendedby deleting the words, numbers, and punctuation “month occurring at least thirty days”and substituting instead the words, numbers, and punctuation “calendar quarter occurringat least sixty days”.

SECTION 68. Tennessee Code Annotated, Section 67-6-710, is amended bydeleting subsections (e) and (f) in their entirety.

SECTION 69. Tennessee Code Annotated, Section 67-6-714, is deleted in itsentirety.

SECTION 70. (a) The commissioner shall refund the portion of the local taximposed by this chapter that is attributable to the amendment of the single articleprovision of the Local Option Revenue Act by this Act for any taxpayers that paybusiness tax under Title 67, Chapter 4, Part 7; franchise and excise tax underTitle 67, Chapter 4, Parts 20 and 21; or sales and use tax under Title 67, Chapter6.

(b) The refund provided for by this section shall be limited to thedifference in tax paid by the person entitled to such refund and the tax that wouldhave been paid on the first thirty-two hundred dollars ($3,200) of the sale price ofa single article as defined in Section 67-6-702(d) on tangible personal propertyother than motor vehicles, aircraft, watercraft, modular homes, manufacturedhomes, or mobile homes prior to the effective date of Section 64 of this act. Therefund shall only be allowed on tangible personal property purchased by thetaxpayer for use in the business for which the taxpayer is registered undersubsection (a).

(c) A person entitled to a refund pursuant to this section shall make asingle yearly claim for refund to the commissioner, covering a period of twelve(12) consecutive calendar months, the period to be specified by thecommissioner. The commissioner is authorized to make refunds pursuant to thissection, provided a claim is filed with the commissioner, under oath andsupported by proper proof, within six (6) months after the end of the twelve (12)month period covered by the claim. The provisions of § 67-1-1802 do not applyto refunds made pursuant to this section.

(d) In lieu of filing a claim for refund a dealer registered for sales anduse tax may take a credit on its sales and use tax return for the tax that would berefundable under subsection (b) of this section. Any dealer that takes this crediton its sales and use tax return must file on an annual basis an information reportwith the commissioner. This information report shall be in a format approved bythe commissioner and shall contain sufficient information for the commissioner'sdelegates to verify the validity of a credit taken under this section. Thisinformation report shall include:

(1) Information showing that the item qualifies as a single articleunder § 67-6-702;

(2) The amount of the Tennessee sales tax remitted on thesingle article;

(3) The local jurisdiction to which the tax was paid;

(4) If applicable, information regarding the vendor to whom thetax was paid; and

(5) Such other information as necessary to determine thevalidity of the credit taken.

This information report shall be filed within sixty (60) days of the close of eachcalendar year in which a credit was taken on any sales and use tax return.


Notwithstanding any other provision in this part:

(a) A local tax imposed under this part or change in a local taxrate shall become effective only on the first day of a calendar quarter andno sooner than sixty-one days after the commissioner has made areasonable effort to notify dealers of the new tax or change in the rate;provided, however, the failure of a dealer to receive notice does not

relieve it of the obligation to collect, remit or pay the tax imposed underthis part; and further provided that the failure of a purchaser to receivenotice does not relieve the purchaser of any use tax obligation.

(b) Notwithstanding the provisions of subsection (a), with respectto purchases from printed catalogs where the purchaser computes thetax based on local rates published in the catalog, a local tax imposedunder this part or change in a local tax rate shall become effective onlyon the first day of a calendar quarter and no sooner than one hundredtwenty-one days after the commissioner has made a reasonable effort tonotify dealers of the new tax or change in the rate; provided, however,the failure of a dealer to receive notice does not relieve it of theobligation to collect, remit or pay the tax imposed under this part; andfurther provided that the failure of a purchaser to receive notice does notrelieve the purchaser of any use tax obligation.

(c) For sales and use tax purposes only, local jurisdictionboundary changes shall become effective only on the first day of acalendar quarter and no sooner than one sixty-one days after thecommissioner has made a reasonable effort to notify dealers of the newtax or change in the rate; provided, however, the failure of a dealer toreceive notice does not relieve it of the obligation to collect, remit or paythe tax imposed under this part; and further provided that the failure of apurchaser to receive notice does not relieve the purchaser of any use taxobligation.

SECTION 72. Tennessee Code Annotated, Section 67-8-802, is amended bydeleting subsection (a) and substituting instead the following:

(a) For purposes of Sections 67-6-803 and 67-6-804, “agreement”means the Streamlined Sales and Use Tax Agreement as amended and adoptedon January 27, 2001, by the national conference of state legislatures' special taskforce on state and local taxation of telecommunications and electronic commerceand adopted by the executive committee of the national conference of statelegislatures; for purposes of Sections 67-6-804 through 67-6-806, “agreement”means the agreement styled “Streamlined Sales and Use Tax Agreement,”adopted November 12, 2002, by the Streamlined Sales Tax Implementing States,including any amendment to the agreement so long as the amendment has alsobeen adopted by the Streamlined Sales Tax Implementing States.

SECTION 73. Tennessee Code Annotated, Title 67, Chapter 6, Part 8, isamended by deleting Section 67-6-805 through Section 67-6-808, and by substitutinginstead the following new sections:

67-6-805. (a) The commissioner of revenue is authorized to enter into,on behalf of the state of Tennessee, the agreement styled “Streamlined Salesand Use Tax Agreement,” adopted November 12, 2002, by the StreamlinedSales Tax Implementing States, including any amendment to the agreement solong as the amendment has also been adopted by the Streamlined Sales TaxImplementing States. After Tennessee becomes a member of the agreement,the commissioner is authorized to take any and all action pursuant to the state’smembership in the agreement, provided such action is not inconsistent with anylaw of this state.

(b) No provision of any agreement entered into by the commissionerunder the authority of subsection (a) invalidates or amends any provision of the

law of the state of Tennessee. Implementation of any condition of the agreementin the state of Tennessee, whether adopted before, at, or after membership ofthe state of Tennessee in the agreement, must be authorized by the generalassembly by legislative enactment.

(c) The agreement referenced in this section is an accord amongindividual cooperating sovereigns in furtherance of their governmental functions.The agreement provides a mechanism among the member states to establishand maintain a cooperative, simplified system for the application andadministration of sales and use taxes under the duly adopted law of eachmember state.

(d) No person, other than a member state, is an intended beneficiary ofthe agreement. Any benefit to a person other than a state is established by thelaw of the state of Tennessee and the other member states and not by the termsof the agreement.

(e) No person shall have any cause of action or defense under theagreement. No person may challenge, in any action brought under any provisionof law, any action or inaction by any department, agency, or other instrumentalityof the state of Tennessee, or any political subdivision of the state of Tennesseeon the grounds that the action or inaction is inconsistent with the agreement.

(f) No law of the state of Tennessee, or the application thereof, may bedeclared invalid as to any person or circumstance on the ground that theprovision or application is inconsistent with the agreement.

(g) Determinations pertaining to the agreement that are made by themember states are final when rendered and are not subject to protest, appeal orreview in any court in this state.

67-6-806. (a) The commissioner shall provide and maintain a databasethat describes boundary changes for all counties, cities and towns that levy a taxpursuant to Part 7 of this chapter. This database shall include a description of thechange and the effective date of the change for sales and use tax purposes.

(b) The commissioner shall provide and maintain a database of all salesand use tax rates for all counties, cities and towns of the jurisdictions that levy atax pursuant to Part 7 of this chapter. For the identification of the state, counties,cities and towns, codes corresponding to the rates must be provided according toFederal Information Processing Standards (FIPS) as developed by the NationalInstitute of Standards and Technology.

(c) The commissioner shall provide and maintain a database thatassigns each five digit and nine digit zip code within the State to the proper taxrates and jurisdictions. If the zip code area includes more than one local tax rate,the rate assigned to that area must be the lowest rate otherwise applicable withinthe area.

(d) The commissioner shall participate with other member states in thedevelopment of an address-based system for assigning taxing jurisdictions. Thesystem must meet the requirements developed pursuant to the federal MobileTelecommunications Sourcing Act (4 U.S.C. Sec. 119). If the commissionerdevelops an address-based assignment system pursuant to the MobileTelecommunications Sourcing Act, a seller may use that system in place of thesystem provided for in subsection (c) of this section.

SECTION 74. Tennessee Code Annotated, Title 67, Chapter 6, is amended byadding the following new Part 9:

67-6-901. (a) Notwithstanding any other law to the contrary, this partshall apply in determining whether a transaction is subject to the tax levied underthe provisions of this chapter, and if so in determining the applicable local taxlevied under the provisions of Part 7 of this chapter. The provisions of this partapply regardless of the characterization of a product as tangible personalproperty, a digital good, or a service, and apply only to determine a seller'sobligation to pay or collect and remit a sales or use tax with respect to the seller'sretail sale of a product. These provisions do not affect the obligation of apurchaser or lessee to remit tax on the use of the product to the taxingjurisdictions of that use.

(b) Nothing in this part is intended to impose tax on a transaction if astate tax on the transaction is prohibited by the United States constitution or theconstitution of this state.

(c) The general provisions of §§ 67-6-902 through 67-6-905 do not applyto sales or use taxes levied on the following, except as specifically provided for inthis subsection (c); instead the special provisions of § 67-6-906 shall apply:

(1) The retail sale or transfer of watercraft, modular homes,manufactured homes, or mobile homes.

(2) The retail sale, excluding lease or rental, of motor vehicles,trailers, semi-trailers, or aircraft that do not qualify as transportationequipment, as defined in § 67-9-902(d). The retail sale of these itemsshall be sourced according to existing law as of the effective date of thispart, and the lease or rental of these items shall be sourced according to§ 67-9-902(d).

(3) Telecommunications services, as set out in § 67-9-905, shallbe sourced in accordance with that section.

67-6-902. (a) The retail sale, excluding lease or rental, of a product shallbe sourced as follows:

(1) When the product is received by the purchaser at a businesslocation of the seller, the sale is sourced to that business location.

(2) When the product is not received by the purchaser at abusiness location of the seller, the sale is sourced to the location wherereceipt by the purchaser (or the purchaser's donee, designated as suchby the purchaser) occurs, including the location indicated by instructionsfor delivery to the purchaser (or donee), known to the seller.

(3) When subsections (a)(1) and (a)(2) do not apply, the sale issourced to the location indicated by an address for the purchaser that isavailable from the business records of the seller that are maintained inthe ordinary course of the seller's business when use of this addressdoes not constitute bad faith.

(4) When subsections (a)(1), (a)(2), and (a)(3) do not apply, thesale is sourced to the location indicated by an address for the purchaser

obtained during the consummation of the sale, including the address of apurchaser's payment instrument, if no other address is available, whenuse of this address does not constitute bad faith.

(5) When none of the previous rules of subsections (a)(1),(a)(2), (a)(3), or (a)(4) apply, including the circumstance in which theseller is without sufficient information to apply the previous rules, thenthe location will be determined by the address from which tangiblepersonal property was shipped, from which the digital good or thecomputer software delivered electronically was first available fortransmission by the seller, or from which the service was provided(disregarding for these purposes any location that merely provided thedigital transfer of the product sold).

(b) The lease or rental of tangible personal property, other than propertyidentified in subsection (c) or subsection (d), shall be sourced as follows:

(1) For a lease or rental that requires recurring periodicpayments, the first periodic payment is sourced the same as a retail salein accordance with the provisions of subsection (a). Periodic paymentsmade subsequent to the first payment are sourced to the primaryproperty location for each period covered by the payment. The primaryproperty location shall be as indicated by an address for the propertyprovided by the lessee that is available to the lessor from its recordsmaintained in the ordinary course of business, when use of this addressdoes not constitute bad faith. The property location shall not be alteredby intermittent use at different locations, such as use of businessproperty that accompanies employees on business trips and servicecalls.

(2) For a lease or rental that does not require recurring periodicpayments, the payment is sourced the same as a retail sale inaccordance with the provisions of subsection (a).

(3) This subsection does not affect the imposition or computationof sales or use tax on leases or rentals based on a lump sum oraccelerated basis, or on the acquisition of property for lease.

(c) The lease or rental of motor vehicles, trailers, semi-trailers, or aircraftthat do not qualify as transportation equipment, as defined in subsection (d), shallbe sourced as follows:

(1) For a lease or rental that requires recurring periodicpayments, each periodic payment is sourced to the primary propertylocation. The primary property location shall be as indicated by anaddress for the property provided by the lessee that is available to thelessor from its records maintained in the ordinary course of business,when use of this address does not constitute bad faith. This location shallnot be altered by intermittent use at different locations.

(2) For a lease or rental that does not require recurring periodicpayments, the payment is sourced the same as a retail sale inaccordance with the provisions of subsection (a).

(3) This subsection does not affect the imposition or computationof sales or use tax on leases or rentals based on a lump sum oraccelerated basis, or on the acquisition of property for lease.

(d) The retail sale, including lease or rental, of transportation equipmentshall be sourced the same as a retail sale in accordance with the provisions ofsubsection (a), notwithstanding the exclusion of lease or rental in subsection (a).For purpose of this part, “transportation equipment” means any of the following:

(1) Locomotives and railcars that are utilized for the carriage ofpersons or property in interstate commerce.

(2) Trucks and truck-tractors with a Gross Vehicle Weight Rating(GVWR) of 10,001 pounds (10,001 lbs) or greater, trailers, semi-trailers,or passenger buses that are:

(i) Registered through the International RegistrationPlan; and

(ii) Operated under authority of a carrier authorized andcertificated by the U.S. Department of Transportation or anotherfederal authority to engage in the carriage of persons or propertyin interstate commerce.

(3) Aircraft that are operated by air carriers authorized andcertificated by the U.S. Department of Transportation or another federalor a foreign authority to engage in the carriage of persons or property ininterstate or foreign commerce.

(4) Containers designed for use on and component partsattached or secured on the items set forth in subsections (d)(1) through(d)(3).

(e) For the purposes of subsection (a), the terms "receive" and "receipt"mean:

(1) Taking possession of tangible personal property,

(2) Making first use of services, or

(3) Taking possession or making first use of digital goods,whichever comes first.

The terms "receive" and "receipt" do not include possession by ashipping company on behalf of the purchaser.

67-6-903. (a) Notwithstanding the provisions of Section 67-6-902, abusiness purchaser that is not a holder of a direct pay permit that knows at thetime of its purchase of a digital good, computer software delivered electronically,or a service that the digital good, computer software delivered electronically, orservice will be concurrently available for use in more than one jurisdiction shalldeliver to the seller in conjunction with its purchase a Multiple Points of Use or“MPU” Exemption Certificate disclosing this fact.

(b) Upon receipt of the MPU Exemption Certificate, the seller is relievedof all obligation to collect, pay, or remit the applicable tax and the purchaser shallbe obligated to collect, pay, or remit the applicable tax on a direct pay basis.

(c) A purchaser delivering the MPU Exemption Certificate may use anyreasonable, but consistent and uniform, method of apportionment that issupported by the purchaser's business records as they exist at the time of theconsummation of the sale.

(d) The MPU Exemption Certificate will remain in effect for all futuresales by the seller to the purchaser (except as to the subsequent sale's specificapportionment that is governed by the principle of subsection (b) and the factsexisting at the time of the sale) until it is revoked in writing.

(e) A holder of a direct pay permit shall not be required to deliver a MPUExemption Certificate to the seller. A direct pay permit holder shall follow theprovisions of subsection (c) in apportioning the tax due on a digital good or aservice that will be concurrently available for use in more than one jurisdiction.

67-6-904. (a) Notwithstanding Section 67-6-902, a purchaser of directmail that is not a holder of a direct pay permit shall provide to the seller inconjunction with the purchase either a Direct Mail Certificate or information toshow the jurisdictions to which the direct mail is delivered to recipients.

(1) Upon receipt of the Direct Mail Certificate, the seller isrelieved of all obligations to collect, pay, or remit the applicable tax andthe purchaser is obligated to pay or remit the applicable tax on a directpay basis. A Direct Mail Certificate shall remain in effect for all futuresales of direct mail by the seller to the purchaser until it is revoked inwriting.

(2) Upon receipt of information from the purchaser showing thejurisdictions to which the direct mail is delivered to recipients, the sellershall collect the tax according to the delivery information provided by thepurchaser. In the absence of bad faith, the seller is relieved of anyfurther obligation to collect tax on any transaction where the seller hascollected tax pursuant to the delivery information provided by thepurchaser.

(b) If the purchaser of direct mail does not have a direct pay permit anddoes not provide the seller with either a Direct Mail Certificate or deliveryinformation, as required by subsection (a) of this section, the seller shall collectthe tax according to Section 67-6-902(a)(5). Nothing in this paragraph shall limita purchaser’s obligation for sales or use tax to any state to which the direct mailis delivered.

(c) If a purchaser of direct mail provides the seller with documentation ofdirect pay authority, the purchaser shall not be required to provide a Direct MailCertificate or delivery information to the seller.

67-6-905. (a) Except for the defined telecommunication services insubsection (c), the sale of telecommunication service sold on a call-by-call basisshall be sourced to (i) each level of taxing jurisdiction where the call originatesand terminates in that jurisdiction or (ii) each level of taxing jurisdiction where thecall either originates or terminates and in which the service address is alsolocated.

(b) Except for the defined telecommunication services in subsection (c),a sale of telecommunications services sold on a basis other than a call-by-callbasis, is sourced to the customer's place of primary use.

(c) The sale of the following telecommunication services shall be sourcedto each level of taxing jurisdiction as follows:

(1) A sale of mobile telecommunications services other than air-to-ground radiotelephone service and prepaid calling service, is sourcedto the customer's place of primary use as required by the MobileTelecommunications Sourcing Act, codified at 4 USCS §§ 116-126.

(2) A sale of post-paid calling service is sourced to theorigination point of the telecommunications signal as first identified byeither (i) the seller's telecommunications system, or (ii) informationreceived by the seller from its service provider, where the system used totransport such signals is not that of the seller.

(3) A sale of prepaid calling service is sourced in accordancewith Section 67-6-902. Provided however, in the case of a sale of mobiletelecommunications service that is a prepaid telecommunicationsservice, the rule provided in Section 67-6-902(a)(5) shall include as anoption the location associated with the mobile telephone number.

(4) A sale of a private communication service is sourced asfollows:

(i) Service for a separate charge related to a customerchannel termination point is sourced to each level of jurisdictionin which such customer channel termination point is located.

(ii) Service where all customer termination points arelocated entirely within one jurisdiction or levels of jurisdiction issourced in such jurisdiction in which the customer channeltermination points are located.

(iii) Service for segments of a channel between twocustomer channel termination points located in differentjurisdictions and which segment of channel are separatelycharged is sourced fifty percent in each level of jurisdiction inwhich the customer channel termination points are located.

(iv) Service for segments of a channel located in morethan one jurisdiction or levels of jurisdiction and which segmentsare not separately billed is sourced in each jurisdiction based onthe percentage determined by dividing the number of customerchannel termination points in such jurisdiction by the totalnumber of customer channel termination points.

(d) For the purpose of this section, the following definitions apply:

(1) "Air-to-Ground Radiotelephone service" means a radioservice, as that term is defined in 47 CFR 22.99, in which commoncarriers are authorized to offer and provide radio telecommunicationsservice for hire to subscribers in aircraft.

(2) "Call-by-call Basis" means any method of charging fortelecommunications services where the price is measured by individualcalls.

(3) "Communications Channel" means a physical or virtual pathof communications over which signals are transmitted between or amongcustomer channel termination points.

(4) "Customer" means the person or entity that contracts withthe seller of telecommunications services. If the end user oftelecommunications services is not the contracting party, the end user ofthe telecommunications service is the customer of thetelecommunication service, but this sentence only applies for thepurpose of sourcing sales of telecommunications services under Section314. "Customer" does not include a reseller of telecommunicationsservice or for mobile telecommunications service of a serving carrierunder an agreement to serve the customer outside the home serviceprovider's licensed service area.

(5) "Customer Channel Termination Point" means the locationwhere the customer either inputs or receives the communications.

(6) "End user" means the person who utilizes thetelecommunication service. In the case of an entity, “end user” meansthe individual who utilizes the service on behalf of the entity.

(7) "Home service provider" means the same as that term isdefined 4 USC § 124(5).

(8) "Mobile telecommunications service" means the same asthat term is defined in 4 USC § 124(7).

(9) "Place of primary use" means the street addressrepresentative of where the customer's use of the telecommunicationsservice primarily occurs, which must be the residential street address orthe primary business street address of the customer. In the case ofmobile telecommunications services, "place of primary use" must bewithin the licensed service area of the home service provider.

(10) "Post-paid calling service" means the telecommunicationsservice obtained by making a payment on a call-by-call basis eitherthrough the use of a credit card or payment mechanism such as a bankcard, travel card, credit card, or debit card, or by charge made to which atelephone number which is not associated with the origination ortermination of the telecommunications service. A post-paid callingservice includes a telecommunications service that would be a prepaidcalling service except it is not exclusively a telecommunication service.

(11) "Prepaid calling service" means the right to accessexclusively telecommunications services, which must be paid for inadvance and which enables the origination of calls using an accessnumber or authorization code, whether manually or electronically dialed,and that is sold in predetermined units or dollars of which the numberdeclines with use in a known amount.

(12) "Private communication service" means atelecommunication service that entitles the customer to exclusive orpriority use of a communications channel or group of channels betweenor among termination points, regardless of the manner in which suchchannel or channels are connected, and includes switching capacity,extension lines, stations, and any other associated services that areprovided in connection with the use of such channel or channels.

(13) "Service address" means:

(i) The location of the telecommunications equipment towhich a customer's call is charged and from which the calloriginates or terminates, regardless of where the call is billed orpaid.

(ii) If the location in subdivision (13)(1)(i) is not known,service address means the origination point of the signal of thetelecommunications services first identified by either the seller'stelecommunications system or in information received by theseller from its service provider, where the system used totransport such signals is not that of the seller.

(iii) If the locations in subdivisions (13)(i) and (13)(ii) arenot known, the service address means the location of thecustomer's place of primary use.

67-6-906. (a) The retail sale or transfer, including lease or rental, ofwatercraft, modular homes, manufactured homes, or mobile homes; and theretail sale, excluding lease or rental, of motor vehicles, trailers, semi-trailers, oraircraft that do not qualify as transportation equipment, as defined in § 67-9-902(d); shall be sourced according to the following rules:

(b) If the sale or transfer is made by a dealer regularly engaged in suchsales or transfers, the transaction is sourced to the business location of theseller.

(c) If the sale or transfer is made by a dealer who is registered with thedepartment for sales and use taxes, but who is not regularly engaged in suchsales or transfers, the transaction is sourced to the business location of theseller.

(d) In all other cases the sale or transfer is sourced to the primarylocation of the property. The primary property location shall be the address forthe property provided by the owner and that is placed on the application for titleor registration, when use of this address does not constitute bad faith. Theproperty location shall not be altered by intermittent use at different locations,such as use of business property that accompanies employees on business tripsand service calls. If the purchaser does not apply for title or registration, thetransaction shall be sourced to the place of where the property is usually located,or if that place cannot be ascertained, to the place of domicile of the purchaser.

SECTION 75. Tennessee Code Annotated, Title 67, Chapter 4, is amended byadding the following new part:

PART 23 – SPECIAL USER PRIVILEGE TAXES

67-4-2301. This part may be cited as the “Special User Privilege TaxLaw”.

67-4-2302. (a) There is levied on the purchase, use, importation for use,or consumption of the goods and services named in this part, at the ratesspecified by this part, a user privilege tax to be paid by the purchaser, user, orconsumer.

(b) The commissioner of revenue shall administer and enforce theassessment and collection of the taxes levied by this part, and shall have theauthority and power to prescribe the method by which persons liable for the taxlevied shall remit the tax and make reports of such facts and information as willenable the commissioner to ascertain the correctness of the amount reportedand paid by such persons. All persons subject to the tax levied by this part arerequired to register with the Department of Revenue.

(c) The exemptions provided for in Sections 67-6-308, 67-6-322(a) and(b), 67-6-329(a)(13) [exemption for sales made to state of Tennessee and to anycounty or municipality within the state], and 67-6-384 are applicable to the taxlevied under this part.

67-4-2303. (a) There is levied a tax of 1.5% on the purchase price ofwater, and a tax of 1.5% on the purchase price of gas, electricity, fuel oil, coal,and other energy fuel, sold to or used by manufacturers.

(b) For the purpose of this section, "manufacturer" means one whoseprincipal business is fabricating or processing tangible personal property forresale.

(c) Water, gas, electricity, fuel oil, coal, and other energy fuel sold to orused by manufacturers shall be exempt from the tax levied by this sectionwhenever it may be established to the satisfaction of the commissioner, byseparate metering or otherwise, that the substance is exclusively used directly inthe manufacturing process, coming into direct contact with the article beingfabricated or processed by the manufacturer, and being expended in the courseof such contact. Whenever the commissioner determines that the use of suchsubstance by a manufacturer meets such test, the commissioner shall issue acertificate evidencing the entitlement of the manufacturer to the exemption. Thecertificate may be revoked by the commissioner at any time upon a finding thatthe conditions precedent to the exemption no longer exist. The commissioner'saction as to the granting or revoking of a certificate shall be reviewable solely bya petition for common law certiorari addressed to the chancery court of DavidsonCounty.

(d) Any water or energy fuel used by a manufacturer in fabricating orprocessing tangible personal property for resale shall be exempt from the taximposed by this section when same are produced or extracted directly by themanufacturer from facilities owned by the manufacturer or in the public domain.

(e) Notwithstanding the requirement of direct contact, there shall beexempt entirely from the tax imposed by this section electricity used to generateradiant heat for production of heat-treated glass when sold to or used bymanufacturers; provided, that the manufacturer has applied for and received acertificate of exemption as required by this section.

(f) The tax levied by this section shall also apply to the use of suchsubstances by a person engaged at a location in packaging automotive

aftermarket products manufactured at other locations by the same person or by acorporation affiliated with the manufacturing corporation such that:

(1) Either corporation directly owns or controls one hundredpercent (100%) of the capital stock of the other corporation; or

(2) One hundred percent (100%) of the capital stock of bothcorporations is directly owned or controlled by a common parent.

"Packaging", as used in this subsection, refers only to the fabrication and/orinstallation of that packaging which will accompany the automotive aftermarketproduct when sold at retail. The tax shall apply only to such substances used inthe packaging process if such use is established to the satisfaction of thecommissioner by separate metering or otherwise.

(g) Notwithstanding the requirement of direct contact, natural gas used togenerate heat for the production of primary aluminum and aluminum can sheetproducts when sold to or used by manufacturers shall be exempt from the taximposed by this section; provided, that the manufacturer applies for and receivesa certificate of exemption as required by this section.

(h) (1) The tax collected on the use of water shall be distributed asfollows: sixty-seven percent shall be deposited to the state general fundand the remaining thirty-three percent shall be distributed to the citiesand counties in accordance with collections.

(2) The tax collected on the use of gas, electricity, fuel oil, coal,and other energy fuel shall be deposited to the state general fund.

67-4-2304. (a) There is levied a tax of 7.0% on the purchase price ofenergy in the form of steam or chilled water purchased from an energy resourcerecovery facility operated in a county with a metropolitan form of government.

(b) The tax collected on the use of gas, electricity, fuel oil, coal, andother energy fuel shall be deposited to the state general fund.

67-4-2305. (a) There is levied a tax at the rate of five and one-quarterpercent (5 1/4%) on the purchase price of tangible personal property, excludingitems listed in Sections 67-6-302, 67-6-321, and 67-6-313(i), sold and deliveredto common carriers in this state for use outside this state.

(b) The tax collected under this section shall be distributed as follows:71.43 percent shall be deposited to the state general fund and the remaining28.57 percent shall be distributed to the cities and counties in accordance withcollections.

67-4-2306. (a) There is levied a tax of four and one-half percent (4 ½%)on the purchase price (calculated exclusive of any federal excise tax paid by theproducer or purchaser on such fuel) of aviation fuel, except for fuel described inSection 67-6-349, used by common carriers that is actually used in the operationof airplane or aircraft motors.

(b) For purposes of this section, “commercial air carrier” means an entityauthorized and certificated by the U.S. Department of Transportation or anotherfederal or a foreign authority to engage in the carriage of persons or property ininterstate or foreign commerce.

(c) The tax collected under this section shall be distributed to thetransportation equity trust fund.

67-4-2307. (a) There is levied a tax of 6.0% on the purchase price ofdiesel fuel sold to or used by a common carrier that is used in the operation oflocomotives or railcars for the carriage of persons or property in interstatecommerce.

(b) The tax collected under this section shall be distributed to thetransportation equity trust fund.


67-4-2401. (a) There is levied a privilege tax of 9 % of the gross chargefor services provided by a cable television service provider authorized pursuantto Title 7, Chapter 59, by a provider of wireless cable television services(multipoint distribution service/multichannel multipoint distribution service).

(b) Such tax shall not apply to the first fifteen dollars ($15.00) of grosscharges for television programming or television service charges or fees providedby a cable television service provider authorized pursuant to Title 7, Chapter 59,or by a provider of wireless cable television services (multipoint distributionservice/multichannel multipoint distribution service) offered for publicconsumption.

(c) The tax collected under this section shall be distributed as follows: 82percent shall be deposited to the state general fund and the remaining 18percent shall be distributed to the cities and counties in accordance withcollections.

67-4-2402. (a)_There is levied a privilege tax of 8.25 % of the grosscharge for services provided by a direct-to-home satellite service provider.

(b) The tax collected under this section shall be deposited to the stategeneral fund.

67-4-2403. (a) The taxes levied herein shall be collected from the dealeras defined in T.C.A. § 67-6-102 and paid at the time and in the mannerhereinafter provided. The tax imposed by this chapter shall be collected by thedealer from the consumer insofar as it can be done.

(b) The providers shall indicate in some definite manner whether theircustomers are paying this privilege tax. This indication must be stated on theticket, invoice, or other record given to the customer.

67-4-2404. (a) The taxes levied under this part shall be due and payablemonthly, on the first day of each month, and for the purposes of ascertaining theamount of tax payable under this chapter, it shall be the duty of all dealers on orbefore the twentieth day of each month to transmit to the commissioner returnsshowing the gross charges arising from the sale of services taxable under thischapter during the preceding calendar month.

(b) At the time of transmitting the return required hereunder to thecommissioner, the dealer shall remit to the commissioner therewith the amount of

tax due, and failure to so remit such tax shall cause the tax to becomedelinquent.

67-4-2405. (a) The commissioner of revenue shall administer andenforce the assessment and collection of the taxes levied by this part.

(b) (1) The commissioner is authorized to prescribe all rules andregulations necessary for the administration of this part, and for thecollection of the taxes thereby imposed.

(2) Rules and regulations not inconsistent with this part whenpromulgated by the commissioner, and approved by the attorney generaland reporter, shall have the force and effect of law.

(c) The commissioner is empowered to examine the books and recordsof any person subject to the provisions of this part.

67-4-2406. (a) When any person shall fail to file any form, statement,report or return required to be filed with the commissioner, after being givenwritten notice of same, the commissioner is authorized to determine the taxliability of such person from whatever source of information may be available tothe commissioner or the commissioner’s delegates.

(b) An assessment made by the commissioner pursuant to this authorityshall be binding as if made upon the sworn statement, report or return of theperson liable for the payment of such tax; and any person against whom such anassessment is lawfully made shall thereafter be estopped to dispute the accuracythereof except upon filing a true and accurate return, together with suchsupporting evidence as the commissioner may require, indicating precisely theamount of the alleged inaccuracy.

67-4-2407. (a) It is the duty of every person required to pay a tax underthis part to keep and preserve records showing the gross amount of sales taxowed to the state, and the amount of such person's gross receipts taxable underthis part, and such other books of account as may be necessary to determine theamount of tax hereunder, and all such books and records shall be open toinspection at all reasonable hours to the commissioner or any person dulyauthorized by either of them.

(b) All such books and records shall be maintained by the taxpayer for aperiod of three (3) years from December 31 of the year in which the taxpayer isresponsible for paying the tax on the transaction(s) represented by the record.


67-4-2501. (a) There is levied a privilege tax of seven percent (7.0 %) ofgross charges on the retail sale of dyed diesel fuel, as that term is defined in §67-3-1203. For purposes of this part, retail sale shall mean the same as definedin § 67-6-102.

(b) The commissioner is authorized and empowered to require the use ofcertificates of resale, or other satisfactory proof, as proof that any sale claimed tobe other than a “retail sale” is in fact not a retail sale.

(c) The tax collected under this section shall be deposited to the stategeneral fund.

67-4-2502. (a) The tax shall be collected from the dealer as defined inT.C.A. § 67-6-102 and paid at the time and in the manner hereinafter provided.The tax imposed by this part shall be collected by the dealer from the consumerinsofar as it can be done.

(b) The dealer shall indicate in some definite manner whether itscustomers are paying this privilege tax. This indication must be stated on theticket, invoice, or other record given to the customer.

67-4-2503. Sales to governmental entities that are exempt from the salestax imposed by Title 67, Chapter 6, and sales of fuel to a "qualified farmer ornurseryman," as defined in § 67-6-207 for “agricultural purposes” as defined in §67-3-1203, shall be exempt from the tax imposed by this part.

67-4-2504. (a) The taxes levied under this part shall be due and payablemonthly, on the first day of each month, and for the purposes of ascertaining theamount of tax payable under this part, it shall be the duty of all dealers on orbefore the twentieth day of each month to transmit to the commissioner returnsshowing the gross charges of fuel taxable under this part during the precedingcalendar month.

(b) At the time of transmitting the return required hereunder to thecommissioner, the dealer shall remit to the commissioner therewith the amount oftax due, and failure to so remit such tax shall cause the tax to becomedelinquent.

67-4-2505. (a) The commissioner of revenue shall administer andenforce the assessment and collection of the taxes levied by this part.

(b) (1) The commissioner is authorized to prescribe all rules andregulations necessary for the administration of this part, and for thecollection of the taxes thereby imposed.

(2) Rules and regulations not inconsistent with this part whenpromulgated by the commissioner, and approved by the attorney generaland reporter, shall have the force and effect of law.

(c) The commissioner is empowered to examine the books and recordsof any person subject to the provisions of this part.

67-4-2506. (a) When any person shall fail to file any form, statement,report or return required to be filed with the commissioner, after being givenwritten notice of same, the commissioner is authorized to determine the taxliability of such person from whatever source of information may be available tothe commissioner or the commissioner’s delegates.

(b) An assessment made by the commissioner pursuant to this authorityshall be binding as if made upon the sworn statement, report or return of theperson liable for the payment of such tax; and any person against whom such anassessment is lawfully made shall thereafter be estopped to dispute the accuracythereof except upon filing a true and accurate return, together with suchsupporting evidence as the commissioner may require, indicating precisely theamount of the alleged inaccuracy.

67-4-2507. (a) It is the duty of every person required to pay a tax underthis part to keep and preserve records showing the gross amount of sales taxowed to the state, and the amount of such person's gross retail sales taxableunder this part, and such other books of account as may be necessary todetermine the amount of tax hereunder, and all such books and records shall beopen to inspection at all reasonable hours to the commissioner, thecommissioner’s delegates, or any person duly authorized by either of them.

(b) All such books and records shall be maintained by the taxpayer for aperiod of three (3) years from December 31 of the year in which the taxpayer isresponsible for paying the tax on the transaction(s) represented by the record.

SECTION 78. If any provision of this act or the application thereof to any personor circumstance is held invalid, such invalidity shall not affect other provisions orapplications of the act which can be given effect without the invalid provision orapplication, and to that end the provisions of this act are declared to be severable.

SECTION 79. Tennessee Code Annotated, Title 67, Chapter 6, Part 5, isamended by adding the following section:

(a) For purposes of this section, a "bundled transaction" means atransaction consisting of distinct and identifiable telecommunications serviceswhich are sold for a single nonitemized price.

(b) In the case of a bundled transaction of telecommunications services,if the price is attributable to services that are taxable and services that arenontaxable, the portion of the price attributable to the nontaxable services shallbe subject to tax unless the provider can reasonably identify such portion from itsbooks and records kept in the regular course of business for purposes other thansales taxes.

(c) In the case of a bundled transaction of telecommunications services,if the price is attributable to services that are subject to tax at different rates, thetotal price shall be treated as attributable to the services subject to tax at thehigher combined state and local tax rate unless the provider can reasonablyidentify the portion of the price attributable to the services subject to tax at thelower rate from its books and records kept in the regular course of business forpurposes other than sales taxes.

(d) If the taxes that would have otherwise been collected on the distinctand identifiable telecommunications services would have been designated todifferent funds or purposes, such designation shall be based on the sameallocation utilized in (b) or (c). However, if the total of the bundled transactionwas subjected to tax or subjected to tax at the higher combined state and localrate a reasonable allocation method approved by the commissioner shall bemade for designation of the taxes to the different funds or purposes.

(e) The provisions of this section shall be effective with respect to billssubmitted by telecommunications service providers to their customers that aredated on or after January 1, 2004.

SECTION 80. Tennessee Code Annotated, Section 67-6-313(a), is amended bydeleting the subsection in its entirety and by substituting instead the following:

(a) It is not the intention of this chapter to levy a tax upon articles oftangible personal property imported into this state or produced or manufacturedin this state for export without any use in this state so long as title, risk of loss, orpossession passed from the seller to the purchaser prior to importation.

SECTION 81. Sections 20, 64 and 70 shall take effect on January 1, 2006, thepublic welfare requiring it.

SECTION 82. The General Assembly finds and determines that the StreamlinedSales Tax Agreement is necessary to stop the loss of sales tax revenue due to the rapidgrowth of Internet sales, to level the playing field between local businesses and out-of-state businesses, and to negate undue burden on interstate commerce; and that this actis necessary in order for Tennessee to be in compliance with the Streamlined Sales TaxAgreement. Under the Streamlined Sales Tax Agreement, when at least ten (10) statescomprising at least twenty percent (20%) of the total population, as determined by the2000 federal census, of all states imposing a state sales tax have petitioned formembership and have been found to be in compliance with the requirements of theagreement, the agreement will become effective unless a specific effective date isotherwise given. Therefore, the provisions of this act shall become effective either on theeffective date specified for that section or, if no effective date is listed for the section, thenon the first day of the second quarter following the effective date of the Streamlined SalesTax Agreement, the public welfare requiring it; provided, that in no event shall anyprovision of this act take effect prior to July 1, 2004, the public welfare requiring it.

SECTION 83. No provision of this act is intended to nor shall it be construed soas to modify, amend or repeal any provisions of Tennessee Code Annotated, Section 67-6-510, the provisions of which shall be controlling with respect to the allowance of thecredit for the used article taken in trade so that the tax levied by Chapter 6 of Title 67shall continue to be paid only on the "net difference" as that term is used in paragraphs(a) and (b) of Tennessee Code Annotated, Section 67-6-510.

PASSED: May 29, 2003

APPROVED this 16th day of June 2003

CHAPTER NO. 357 SENATE BILL NO. 899 By Clabough, Henry ...

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